You don’t say how short the lease is but it appears to be short enough to deter potential buyers from buying your property.
Some lenders require a minimum of 85 years left to run on a lease before they will be willing to lend. Parties are generally worried the nearer the lease gets to 80 years because the premium payable to acquire an extension increases by a lot once a lease falls below 80 years.
Subject to meeting relevant criteria under the Leasehold Reform, Housing and Urban Development Act 1993, you can serve a statutory notice upon your landlord to acquire a lease term extension and assign the benefit of the notice to an incoming buyer.
You are entitled to 90 years plus the unexpired term of the existing lease and a ground rent reduced to nil. For example, if you have 75 years left to run, the new lease will be 90 + 75 years. The advantage to the buyer is that he/she does not wait two years to have owned the property before the buyer will be in a position to serve a statutory notice to acquire a lease term extension.
The contract for the sale of the property can be drafted to place the responsibility for paying the premium and costs relating to the claim for a lease term extension upon the buyer. Thought must be given to the preparation of the sale contract – in particular who is responsible for preparing the statutory notice, service of the notice, instructing a valuer, etc.
Consider approaching your landlord for a top-up to your existing lease to get it back up to 90 years, rather than insisting on an additional 90 years. You could also offer to pay a ground rent on the basis that this should help reduce the sum payable to the landlord and be more affordable for you. A specialist valuer is best placed to advise you on the permutations and calculating the premium payable for a lease term extension.
An added difficulty is if the buyer’s lender insists on a long lease before they will lend to the buyer to buy your property. Some lenders may be persuaded to make it a condition of the buyer’s mortgage that it will be willing to lend provided the borrower gets an extension by a certain date.
Also think about asking your own lender, if you have a mortgage on the property, to see if they’ll let you have a further advance of funds to finance an extension. It is in the lender’s interests to protect and enhance the value of the property against which it has secured its charge.
Bircham Dyson Bell is a multi-disciplinary UK law firm advising private companies, public sector bodies, not-for-profit organisations and individuals since 1834. Visit bdb-law.co.uk to find out more